Question 1

In the long run, an increase in the money supply

Accepted Answer

A)  leaves prices and unemployment unchanged.
B)  raises prices and unemployment.
C)  raises prices and leaves unemployment unchanged.
D)  leaves prices unchanged and reduces unemployment.E) C) and D)
F) B) and D)

Question 2

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)  both the inflation rate and the unemployment rate.
B)  the inflation rate but not the unemployment rate.
C)  the unemployment rate but not the inflation rate.
D)  neither the unemployment rate nor the inflation rate.E) A) and D)
F) A) and C)

Question 3

In 1980, the U.S. misery index was

Accepted Answer

A)  much higher than average.
B)  slightly higher than average.
C)  about average.
D)  below average.E) A) and C)
F) All of the above

Question 4

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Accepted Answer

A)  to a lower unemployment rate and a lower inflation rate than policy B.
B)  to a lower unemployment rate and a higher inflation rate than policy B.
C)  to a higher unemployment rate and lower inflation rate than policy B.
D)  to a higher unemployment rate and higher inflation rate than policy B.E) B) and D)
F) C) and D)

Question 5

In the late 1970s, proponents of rational expectations argued that

Accepted Answer

A)  the Fed should not attempt to aggressively fight inflation.
B)  the sacrifice ratio was smaller than previously thought.
C)  the short run was relatively long.
D)  None of the above is correct.E) B) and D)
F) A) and D)

Question 6

Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?

Accepted Answer

A)  In the short run, unemployment will increase and inflation will fall.
B)  ​In the short run, unemployment will increase and inflation will rise.
C)  ​In the short run, unemployment will decrease and inflation will rise.
D)  ​In the short run, unemployment will decrease and inflation will fall.E) B) and C)
F) A) and D)

Question 7

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Accepted Answer

A)  1/2.
B)  1.
C)  2.
D)  4.E) B) and C)
F) A) and D)

Question 8

If efficiency wages became more common,

Accepted Answer

A)  both the long-run Phillips curve and the long-run aggregate supply curve would shift right.
B)  both the long-run Phillips curve and the long-run aggregate supply curve would shift left.
C)  the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left.
D)  the long-run Phillips curve would shift left, and the long-run aggregate supply curve would shift right.E) A) and D)
F) All of the above

Question 9

Figure 35-7
Use the two graphs in the diagram to answer the following questions.  
-Refer to Figure 35-7. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to

Accepted Answer

A)  A and 1.
B)  B and 2.
C)  back to C and 3.
D)  D and 4.E) A) and B)
F) B) and C)

Question 10

A policy that raised the natural rate of unemployment would shift

Accepted Answer

A)  both the short-run and the long-run Phillips curves to the right.
B)  the short-run Phillips curve right but leave the long-run Phillips curve unchanged.
C)  the long-run Phillips curve right but leave the short-run Phillips curve unchanged.
D)  neither the long-run Phillips curve nor the short-run Phillips curve right.E) None of the above
F) All of the above

Question 11

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. Assuming the price level in the previous year was 100, point G on the right-hand graph corresponds to

Accepted Answer

A)  point A on the left-hand graph.
B)  point B on the left-hand graph.
C)  point C on the left-hand graph.
D)  point D on the left-hand graph.E) C) and D)
F) B) and D)

Question 12

If the sacrifice ratio is 4, then reducing the inflation rate from 9 percent to 5 percent would require sacrificing

Accepted Answer

A)  4 percent of annual output.
B)  8 percent of annual output.
C)  12 percent of annual output.
D)  16 percent of annual output.E) C) and D)
F) A) and D)

Question 13

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Accepted Answer

A)  right and the unemployment rate rises.
B)  right and the unemployment rate falls.
C)  left and the unemployment rate rises.
D)  left and the unemployment rate falls.E) A) and B)
F) B) and D)

Question 14

If the central bank decreases the money supply, then output

Accepted Answer

A)  and unemployment rises.
B)  rises and unemployment falls.
C)  falls and unemployment rises.
D)  and unemployment falls.E) B) and D)
F) All of the above

Question 15

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment, then the sacrifice ratio is equal to 3.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Accepted Answer

A)  0.4.
B)  1.5.
C)  2.5.
D)  5.0.E) None of the above
F) C) and D)

Question 17

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Accepted Answer

If expected inflation decrease...

Question 18

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Accepted Answer

A)  aggregate demand right.
B)  aggregate demand left.
C)  aggregate supply right.
D)  aggregate supply left.E) C) and D)
F) A) and B)

Question 19

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment falls. The decrea...

Question 20

Figure 35-8
Use this graph to answer the questions below. 
-Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more contractionary monetary policy?

Accepted Answer

A)  7% unemployment and 1% inflation
B)  7% unemployment and 3% inflation
C)  3% unemployment and 5% inflation
D)  3% unemployment and 7% inflationE) C) and D)
F) A) and B)

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Correct Answer
verified

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct Answer
verified

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Correct Answer
verified
Unemployment falls. The decrea...
View Answer

If the sacrifice ratio is 4, then reducing the inflation rate from 9 percent to 5 percent would require sacrificing

Correct Answer
verified

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to

Correct Answer
verified

If the central bank decreases the money supply, then output

Correct Answer
verified

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct Answer
verified

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Correct Answer
verified
If expected inflation decrease...
View Answer

In 1980, the U.S. misery index was

Correct Answer
verified

Correct Answer
verified

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment, then the sacrifice ratio is equal to 3.

Correct Answer
verified

Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?

Correct Answer
verified

A policy that raised the natural rate of unemployment would shift

Correct Answer
verified

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Correct Answer
verified

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Correct Answer
verified

If efficiency wages became more common,

Correct Answer
verified

In the long run, an increase in the money supply

Correct Answer
verified

In the late 1970s, proponents of rational expectations argued that

Correct Answer
verified

Correct Answer
verified

According to the long-run Phillips curve, in the long run monetary policy influences

Correct Answer
verified

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct AnswerverifiedShow Answer

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Correct AnswerverifiedUnemployment falls. The decrea...View AnswerShow Answer

If the sacrifice ratio is 4, then reducing the inflation rate from 9 percent to 5 percent would require sacrificing

Correct AnswerverifiedShow Answer

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

If the central bank decreases the money supply, then output

Correct AnswerverifiedShow Answer

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct AnswerverifiedShow Answer

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Correct AnswerverifiedIf expected inflation decrease...View AnswerShow Answer

In 1980, the U.S. misery index was

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment, then the sacrifice ratio is equal to 3.

Correct AnswerverifiedShow Answer

Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?

Correct AnswerverifiedShow Answer

A policy that raised the natural rate of unemployment would shift

Correct AnswerverifiedShow Answer

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Correct AnswerverifiedShow Answer

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Correct AnswerverifiedShow Answer

If efficiency wages became more common,

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply

Correct AnswerverifiedShow Answer

In the late 1970s, proponents of rational expectations argued that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the long-run Phillips curve, in the long run monetary policy influences

Correct AnswerverifiedShow Answer

Correct Answer
verified

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Unemployment falls. The decrea...
View Answer

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If expected inflation decrease...
View Answer

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